Key Points

International business refers to all business activities, including trade and production, that take place across national frontiers. It is a broader concept than international trade, which is limited to the export and import of goods and services.

International business is more complex than domestic business due to differences in nationality of stakeholders, customer heterogeneity, political systems, business regulations, and currencies used.

The fundamental reason for international business is that countries cannot produce all they need efficiently or cheaply due to unequal resource distribution. Nations specialize in producing what they are best at and trade for the rest.

For nations, international business helps in earning foreign exchange, achieving more efficient use of resources, improving growth prospects and employment, and increasing the standard of living for citizens.

Firms engage in international business to find prospects for higher profits, increase utilization of their production capacity, achieve growth, and escape intense competition in the domestic market.

Exporting and importing is the easiest way to enter international markets, requiring less investment and risk. However, it involves higher transportation costs and can be hindered by import restrictions in foreign countries.

Contract manufacturing, or outsourcing, involves a firm contracting a local manufacturer in a foreign country to produce goods. This mode allows for large-scale production with low investment but carries risks related to quality control.

Licensing is a contractual agreement where one firm grants another foreign firm access to its patents or technology for a fee called royalty. Franchising is similar but is used for services and is generally more stringent.

A joint venture involves establishing a firm that is jointly owned by two or more independent firms. This method shares costs and risks and utilizes local knowledge, but can lead to conflicts over control.

This involves a parent company making a 100 percent investment to establish a subsidiary in a foreign country. It provides full control over operations and technology but requires a large investment and bears all the risk.

Before exporting, a firm must obtain an export license, which requires getting an Import Export Code (IEC) number from the DGFT and registering with the appropriate Export Promotion Council (EPC).

To minimize the risk of non-payment, exporters often demand a Letter of Credit from the importer. A Letter of Credit is a guarantee from the importer's bank that payment will be made.

A bill of lading is a document issued by a shipping company as evidence of receipt of goods for shipment. It serves as a contract for transport and a document of title to the goods.

A shipping bill is the main document required by customs authorities for granting permission to export. It contains details of the goods being exported, the vessel, the destination port, and the exporter.

The import process begins with a trade enquiry from the importer to the exporter. The exporter responds with a quotation known as a proforma invoice, detailing the price, quality, and terms of sale.

A bill of entry is a form filled by the importer and submitted to the customs office for the clearance of imported goods. It is used to assess the customs import duty payable.

In 1991, India faced a severe balance of payment crisis and approached the IMF for funds. The conditions imposed by the IMF led to economic liberalization, integrating India with the world economy.

The World Trade Organization (WTO) is the primary international organization dealing with the rules of trade between nations. Its main goal is to ensure that global trade flows as smoothly, predictably, and freely as possible.